EURUSD finally gained ground last week after declining for several weeks due to sovereign debt worries in some of its member states. The pair reversed its downtrend, temporarily at least, as risk appetite finally returned to the currency markets.

EURUSD began the week by trading off of its weekly low of 1.1875 set on Monday as German Factory Orders came in at an impressive 2.8% increase versus the consensus of a decline of -0.1%.

On Tuesday, the Euro firmed after German Industrial Production showed an increase of 0.9% M/M versus a 0.7% consensus and the previous number was revised upward from 4.0% to 4.3%.

Wednesday saw no economic releases in the Eurozone, but the pair continued its corrective move higher.

On Thursday, the ECB decided to leave the Eurozone's benchmark Minimum Bid Rate at 1%, as was widely expected. ECB President Trichet, in a statement made after the rate announcement, indicated that the economy in the Eurozone was growing moderately in an "environment of continued tensions in some financial market segments and of unusually high uncertainty." Trichet also mentioned that the ECB was buying short-term bonds, but he would not elaborate on the ECB's bond purchasing program.

Also on Thursday, the Constitutional Court in Germany decided to allow Germany to participate in the Eurozone rescue package, which also supported the corrective rally in the Euro.

Other Eurozone economic numbers out on Thursday included French Industrial Production, which fell -0.3% M/M versus an expected increase of 0.3%, although the previous number was revised upward from 1.0% to 1.3%. Also out on Thursday was Italian Industrial Production, which came out at 1.0% versus the 0.6% expected.

On Friday, EURUSD made its weekly high of 1.2152 before selling off on profit taking to close the week at 1.2108, up 1.1% from the previous weekly close.

Fundamental Outlook for EURUSD

The primary market-moving economic data releases and policymaker speeches scheduled for this coming week in the Eurozone and the United States are as follows:

Eurozone:

The coming week of economic data scheduled in the Eurozone is once again relatively quiet, but Tuesday does have the featured ZEW Economic Sentiment index coming out.

Monday begins the week with the release of E.Z. Industrial Production (0.7% M/M),

Tuesday is busy and will see the release of the important ZEW Economic Sentiment indexes (48.7 for Germany and 41.2 for the Eurozone), as well as the Italian and EZ Trade Balances (-1.03B and 1.7B), and the Eurozone Employment Change (-0.2% Q/Q).

Wednesday has European inflation data coming out with the EZ CPI expected at 1.6% and 0.8% Core Y/Y. Thursday features the ECB's Monthly Bulletin, as well as a speech by Buba President Weber scheduled in Frankfurt.

Also due out on Thursday are French Final Non-Farm Payrolls (-0.1% Q/Q) and French Industrial Production (0.7% M/M), as well as German Final CPI (0.1% M/M) and Italian Industrial Production (0.4% M/M).

Friday will finish up the week with the release of German PPI (0.2% M/M) data.

United States:

This week's economic release calendar for the United States is quite busy and features some important inflation data that includes PPI on Wednesday and CPI on Thursday.

Monday begins the week with a speech by FOMC Member Bullard in Tokyo, who will also be speaking in Hong Kong on Tuesday.

Tuesday also offers Import Prices (-1.1% M/M), the Empire State Manufacturing Index (20.1) and TIC Long-Term Purchases (77.3B). The NAHB Housing Market Index (22) is also scheduled tentatively for Tuesday.

These numbers will be followed on Wednesday by the featured release of the Producer Price Index or PPI (-0.5% and 0.1% Core M/M), as well as Building Permits (0.63M), Housing Starts (0.65M), Industrial Production (0.9%M/M) and the Capacity Utilization Rate (74.6%). In addition, Fed Chairman Bernanke is scheduled to make a speech in New York.

Thursday is also a weekly highlight, featuring the important Consumer Price Index or CPI data (-0.2% and 0.1% Core M/M), as well as the Current Account (-120B), Initial Jobless Claims (454K), the Philly Fed Manufacturing Index (21.3) and the CB's Leading Index (0.4% M/M). This will end the week since Friday has nothing of note due out.

The Technical Picture for EURUSD

On the technical front, EURUSD fell to yet another new low at 1.1876 last week as part of its prevailing medium term downtrend. Nevertheless, the rate managed to rally later in the week to close above its key psychological 1.2000 level as growing divergence between the rate and its RSI gave a signal that the downtrend was losing steam.

Furthermore, although this fresh decline managed to just push the rate's 14-day RSI into oversold territory at 29, this was not as strong an oversold event on that RSI as the previous 1.2119 low seen on May 19^th which pushed the indicator down to 21. The key indicator has therefore shown bullish divergenc which saw an initial reversal as high as the 1.2152 level seen last Friday.

In spite of this corrective bounce in EURUSD, the medium-term technical outlook for EURUSD will remain bearish while the rate continues to trade substantially below its 200-day Moving Average that now comes in at 1.3941 and remains sloping firmly downwards. Nevertheless, the historically large gap now seen between the rate and this key average tends to indicate that some closure of this difference would make sense in the short term.

Overall, this scenario tends to argue for an additional corrective bounce in EURUSD that could be preceded by a brief dip seen early this coming week that should not drop below the 1.1876 low before making fresh corrective highs above 1.2200. Still, once this corrective upward move has completed, it should provide yet another selling opportunity for the lower levels for EURUSD still expected over the coming month.

Resistance for EURUSD shows up in the 1.2143/52 region, plus at 1.2215 and at 1.2326. Support for EURUSD is indicated at 1.2045, at 1.1956 and at 1.1876.

Note: Past performance is not indicative of future results.

Figure 1: Daily candlestick chart of EURUSD showing its 200-day MA in red, Bollinger Bands in green and the 14-day RSI in the indicator box in blue.